Many of our personal financial needs can be fulfilled by using personal loans, but what many business owners are unaware of is that personal loans can also be used for business purposes.
For those who are looking to start a business but have been unsuccessful so far in securing a business loan, a personal loan can be exactly the right kind of finance required to get them out of a tricky situation.
How Much Can You Get?
The capital that is often needed to start a business can drop the jaws of budding entrepreneurs. Setting up a business isn’t a cheap task and arranging for the capital is naturally a big concern for those looking to start their own venture.
What most entrepreneurs are skeptical about is whether a personal loan will be sufficient to fulfill the needs of their new business. While the amount you need depends on what type of business you wish to set up and the amount of capital you need, a personal loan may fetch you an amount between £1000 and £25000.
The amount of personal loan that you are finally granted by the lender is dependent on your financial circumstances and the security that you are willing to offer as collateral.
What Do You Need?
There are some basic requirements that you may have to meet in order to apply and avail a personal loan and these may include your country of residence, your age, etc.
But an important consideration in determining whether you should be granted a personal loan or not is your credit score. The credit score becomes an even more important criterion if it is an unsecured loan that you are applying for. Credit score is also instrumental in deciding the amount of loan that you are granted.
But when applying for such loans it is worth noting that even a perfect credit score may not mean that you will be given the complete loan amount that you have applied for. For this reason it is advised that one must calibrate their expectations accordingly.
- It is possible to repay the loan in regular instalments making it an affordable option. For a growing business keeping things affordable can be a priority.
- Inconsistent repayments or defaulting on loans will not affect the business directly.
- It may be quicker and easier to lay your hands on an unsecured personal loan than it may be to secure a business loan. This is primarily due to the large number of lenders that can be found on the high street and on the internet.
- It is your personal responsibility to repay the loan and you will be held accountable for any fall-out resulting from it such as defaulting, etc.
- Your credit score will be severely impacted if you are not able to generate enough profits from the business or if you fail to repay.
- Unsecured personal loans come at high interest rates and this may drastically impact the total repayment amount. It may even rise to twice the sum you borrowed.
- When it comes to the capital that you can receive, business loans are almost at par with personal loans and therefore a start-up business loan will offer you more or less the same sum of money as a personal loan.
- Business loans often come with a lower APR than personal loans. While the exact rate of APR largely depends on the lender it may be possible for you to get a fixed APR around 6 percent so unpleasant surprises may not be something that you have to deal with down the line.
- The repayment term usually varies between 1 to 5 years and therefore it is possible to repay the loan at your convenience.
- Some lenders may ask you to give a personal guarantee which means you will still be involved personally making it exactly like a personal loan.
- How long a business has been in operation can be an important requirement for business loans and they may also have a limit for the same such as a half a year or one, etc.
Whether you should use a personal loan for business depends on your preferences and circumstances. If you are courageous enough to take a risk you should also be wise enough to make yourself secure by taking out an insurance and writing a Will using a free Will kit.